BNP Paribas Analyst Expects Strong Q4 Results for Indian Auto Companies

Kumar Rakesh, an analyst at BNP Paribas, anticipates robust fourth-quarter (Q4) results for most auto companies in India. Rakesh expects these companies to report double-digit revenue growth and margin expansion, attributing the positive performance to the continued recovery in the auto sector, with demand picking up across various vehicle segments.

The analyst's outlook is based on his analysis of industry trends and the performance of major auto companies in the previous quarters. Rakesh's expectations suggest a favorable outlook for the auto sector in India, with companies likely to benefit from improving market conditions.

The automotive sector has become an increasingly important contributor to the revenue of Indian IT services companies, now accounting for 25-35% of their manufacturing or engineering R&D (ER&D) services revenue, up from 15-20% four years ago. Infosys, HCL Technologies, and TCS are leading the pack, with automotive clients contributing an estimated 35%, 30%, and 30% of their ER&D and manufacturing revenue, respectively.

The growth in automotive business for these IT firms has been driven by acquisitions and mega deals, such as Infosys' $480 million acquisition of German automotive ER&D firm In Tech and HCL's $260 million acquisition of ASAP Group. Industry reports and analysts project ER&D to be the fastest-growing vertical for the IT industry in FY24, growing at 7.4% year-on-year, as digital imperatives and the resurgence of AI drive growth in domains like autonomous driving and digital connected solutions.

Why this matters: The strong performance of Indian auto companies in Q4 and the increasing importance of the automotive sector for Indian IT services companies highlight the resilience and growth potential of these industries. The positive outlook bodes well for the Indian economy and investor sentiment in these sectors.

As the earnings season progresses, investors and analysts will closely monitor the performance of auto companies and the guidance provided by their management. The continued recovery in the auto sector and the increasing adoption of digital technologies in the automotive industry are expected to drive growth for both auto manufacturers and IT services companies in India.

Key Takeaways

• Analyst expects robust Q4 results for Indian auto companies with double-digit growth.
• Auto sector now accounts for 25-35% of Indian IT firms' engineering R&D revenue, up from 15-20%.
• Infosys, HCL, and TCS lead in automotive clients contributing 30-35% of ER&D revenue.
• ER&D projected as fastest-growing IT vertical in FY24, driven by digital and AI trends.
• Strong auto performance and growing IT-auto synergy signal resilience and growth potential.